Proposed bill would cut tax paid at closing Legislators could ease burden on homebuyer

January 13, 1991|By Timothy J. Mullaney

More relief may be on the way for homebuyers strapped by the high cost of closing on a home in Maryland, if a bill that is expected to be introduced in this year's General Assembly session wins passage.

Real estate industry lobbyists are pushing for a bill that would cut the amount of property tax that buyers must pay at closing, a move that could slash closing costs for some first-time buyers by 10 percent or more.

Maryland law now requires homebuyers to pay up to 14 months' worth of property taxes in advance at closing.

But officials of the Maryland Association of Realtors and the Greater Baltimore Board of Realtors say they think they have the support to win passage of a bill that would make buyers put up only six months' worth of taxes at closing.

The rest of the taxes would be paid later, as the buyer's cash flow recovers from the shock of plunking down thousands of dollars for a down payment and closing costs. The industry has contended for years, and legislators have generally agreed, that the state's high closing costs -- among the steepest in the nation -- make it difficult for first-time buyers to raise the money they need to buy a home.

"The governor endorsed it last year and has indicated he would endorse it again," said Edgar C. Hilley, executive vice president of the Maryland Association of Realtors.

Schaefer administration officials said the bill is likely to be introduced under the aegis of the Department of Housing and Community Development, though department lobbyist Eileen Fitzgerald said it's not certain which legislator will introduce the bill.

The bill's sponsor last year, Delegate Michael Gisriel, D-Baltimore County, was defeated for re-election.

"The idea behind it is that Maryland's closing costs are so high, and one reason is that in Maryland, property taxes are billed annually and paid in advance," Ms. Fitzgerald said. "It seems to be one of the big impediments to first-time buyers."

Last year, the bill stalled in the face of opposition from municipal officials whose budgets depended on receiving tax money on the schedule for which they had planned, said Mr. Hilley and Joseph McGraw, a lobbyist for the Greater Baltimore Board of Realtors.

Mr. Hilley said the proposal is likely to require homebuyers to compensate counties or Baltimore for the interest that local governments would give up by not collecting their taxes in advance, and for administrative costs of collecting the taxes later.

Legislators have been whittling away for several years at the cost of closing on a home in Maryland. Closing costs include state and local real estate transfer taxes, the advance payment of property taxes, origination fees (or points) on the mortgage loan and assorted smaller expenses.

Mr. Gisriel said Maryland's closing costs are high because of the taxes and fees imposed by the government. Loan fees and other closing costs that are paid to private companies in Maryland are closer to the national norm.

For a $105,000 home in Baltimore County, closing costs can range as high as $7,300, even with the seller picking up a share of the transfer taxes and the points. More than $1,400 of the closing costs represents the payment of property taxes in advance.

If a buyer paid only six months' advance property taxes rather than 14 months', closing costs would fall by about $800.

In Baltimore, closing costs for a home of the same value would be even higher, because of the city's higher property tax rate.

Ms. Fitzgerald added that the administration is also considering a bill that would make property sellers pay the state and local transfer taxes on a home.

The state transfer tax is 0.5 percent of a home's value, with the first $30,000 exempt from the tax. Local transfer taxes range as high as 1.6 percent, with no exemption.

Who pays the tax now varies from regional market to regional market. In metropolitan Baltimore, transfer taxes are usually split down the middle, but in the Washington area they are usually paid entirely by the buyer.

Under current law, the buyer of the same $105,000 house in Baltimore County would pay about $950 in county transfer taxes at settlement and about $175 in state transfer taxes.

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